Northern Ontario Economic Forecasts: Conference Board Forecasts Slower Growth for Thunder Bay and Sudbury

The Conference Board of Canada recently put out its Summer 2018 Metropolitan Outlooks for Thunder Bay and Greater Sudbury.  Greater Sudbury’s real GDP growth is expected to be 1.2 percent in 2018 and 1.1 percent in 2019 while its employment growth will be  -0.4 per cent in 2018 and rise 1.1 percent in 2019.  Meanwhile, Sudbury’s unemployment rate will rise from 6.7 per cent in 2017 to 7.0 per cent for 2018, before falling to 6.6 per cent next year.  Thunder Bay’s real GDP is expected to grow 1.2 percent in 2018 and 1 percent in 2019 with employment expected to rise 2.2 percent in 2018 but fall -0.7 percent in 2019.  The unemployment rate is expected to be lower than Sudbury’s at 5.1 percent in 2018 compared to 5.6 percent in 2017 but is expected to be 5.4 percent in 2019.

As the accompanying figures show, Thunder Bay and Sudbury have been growing more slowly and are expected to grow more slowly than Canada or Ontario.  Sudbury’s economy has been described as “unsettled” with a steady string of employment losses over the last few years.  Its primary hope is the current rebound in nickel prices given the employment losses have been hitting its mining sector.  


 



 
Thunder Bay saw a very good employment growth performance in 2017 that basically helped recover from the 3 percent drop in 2015 – its economy currently can be characterized as “moderate expansion.”  What seems to be driving things at the moment in Thunder Bay s a stronger construction sector with numerous small non-residential projects as residential demand is weak.  Indeed, the housing forecast for 2018 is 155 units – the lowest number of starts in 15 years.  As well, there has been some upturn in manufacturing and transportation.  

So, moving forward.  It appears that both Canada and Ontario are expected to see slower rates of economic growth moving towards 2020 with Thunder Bay and Sudbury even lower.  In terms of employment growth, Sudbury’s recent string of low employment growth is expected to end in 2019 if nickel prices continue their rebound while Thunder Bay in 2019 is expected to see negative employment growth again before resuming growth.  Thunder Bay’s economy has been performing marginally better than Sudbury’s recently as it is somewhat more diversified as in 2017 it had a higher economic structure diversity score of 0.78 compared to Sudbury’s 0.71.

Prelude to Municipal Election: Thunder Bay Economic Overview

As the election campaign for Thunder Bay Mayor and City Council begin to heat up, there will be attention focused on how Thunder Bay’s economy has been doing over the last four years.  The Conference Board and Statistics Canada both provide data for  quick snapshots about how Thunder Bay has done since 2014.  First, real GDP numbers for Thunder Bay (in 2007 dollars) from the Conference Board show that the city’s economy since 2014 has grown at annual rates ranging from a low 0.7 percent in 2015 to a high of 1.4 percent in 2017 with a forecast growth of 1 percent in 2018.  While the local economy is growing, its growth rate is well below that for Ontario and Canada which in 2017 alone saw real GDP growth at 3.2 and 3.1 percent respectively according to the Conference Board. Indeed, out of 29 CMAs in 2017, Thunder Bay ranked second last in real GDP growth – just ahead of St. John’s which saw growth of -1.7 percent.

It turns out that in the wake of the 2014 municipal election, growth faltered in Thunder Bay and that is also borne out by the employment numbers.  According to Statistics Canada, Average monthly employment in 2014 was 61,608 and fell to 59,650 in 2015 and then began to rebound (see Figure) and to date in 2018 averages 61,967.  So, this suggests that the last four years have seen just over 300 jobs added to the Thunder Bay economy which works out to about 75 jobs a year.  (By the way, don't be fooled by what looks like dramatic employment growth since 2015 - after all, the scale on the Figure ranges from 58,000 to 62,500) However, this masks the ebb and flow across sectors.  Manufacturing, public administration, finance, insurance and real estate employment have all declined while there have been increases in accommodation and food services, transportation and warehousing and retail.  Other sectors have been stable.

 

The shrinkage of employment in the finance, insurance and real estate sector is a function of declining house sales and weak housing starts.   As the Conference Board noted in its Winter 2018 Outlook: “Thunder Bay’s uneven economy and slumping population have impaired residential construction. While housing starts clocked in at just under 300 units last year, this was due to an upswing in construction of multi-family homes, particularly apartments, which are relatively infrequent here. Tellingly, CMHC data show that area builders have had no unsold apartments since August 2016. Such projects are risky in an economic environment like Thunder Bay’s, so builders wait for pent-up demand to accumulate, then pre-sell their units.”

What is also interesting is the comparison of employment between Thunder Bay and Ontario as a whole.  In 2016, according to the Conference Board, 16 percent of employment in Thunder Bay was industrial versus 20 percent for Ontario.  As for office employment, it was 20 percent in Thunder Bay and 28 percent for Ontario.  At 5 and 15 percent respectively, the shares in Transport and Warehousing and Wholesale and Retail Trade are the same as for Ontario as a whole.  However, when it comes to non-commercial services (i.e., health, education and public administration), Thunder Bay’s employment share is 27 percent compared to 19 percent for Ontario. When it comes to other services (arts, entertainment, recreation, accommodation and food) Thunder Bay is at 16 percent compared to 13 percent for Ontario.

So, the long and short of Thunder Bay’s economic performance over the last four years is that while not a disaster, it has been uneven.  Real output growth has been weak and total employment has essentially remained stable and within that there is a shift to services particularly of the non-commercial variety meaning more emphasis on public as opposed to private sector employment growth. The lack of population growth combined with an aging population has led to a weakening of the housing sector. That is the current reality.

  

Building Permits Decline

Statistics Canada's most recent report on building permits shows that in June 2018, Canadian municipalities issued $8.1 billion worth of building permits, down 2.3% from the previous month.
The decline was the result of lower construction intentions for residential buildings, following a strong May. Multi-family dwellings accounted for the majority of the decline while the non-residential sector did see increases.  The value of industrial permits rose 5.3% to $603 million, a third consecutive monthly increase. The industrial permit gain in June was largely the result of a few high-value permits issued for agricultural and manufacturing buildings in Ontario.

When the results are examined on an annualized basis - that is June 2017 to June 2018, the total value of permits in Canada was down 5.6 percent with residential permits down 1.5 percent and non-residential down 12.4 percent.  The biggest drop on the non-residential side was for institutional permits which fell 31.1 percent.  When Canada's CMAs are ranked for the June 2017 to June 2018 period (see Figure below), the range is from a high of 202 percent for Moncton to a low of -72 percent for Regina.


With respect to northern Ontario, Thunder Bay saw a decline of 13.9 percent and Greater Sudbury a drop of 43,6 percent in the total value of permits.  Even the GTA and central Ontario area saw a decline with Toronto down 16.5 percent and Kitchener-Cambridge-Waterloo down 46 percent.

Interestingly, despite the weakening in intentions for new construction, the unemployment rate continues to fare well.  Statistics Canada also reported this week that the July unemployment rate in Canada was down to 5.8 percent with annualized employment growth.  With respect to northern Ontario, Sudbury's unemployment rate (3-month seasonally adjusted moving average) fell from 6.8 percent in June to 6.6 percent in July even though its total employment fell from 80,500 to 80,400 jobs.  Meanwhile Thunder Bay's unemployment rate fell from 5.1 percent in June to 5 percent in July while its employment level rose from 64,900 to 65,000.

Thunder Bay's Municipal Election Issues: A Brief List

With all of the candidates signed up and off and running, it is now time for the candidates running for municipal office in Thunder Bay to present their platforms and debate the issues they feel will define and shape municipal government here over the next four years.  While no one can predict the future, there are a number of issues that face municipal government in Thunder Bay and will affect its ability to deliver public services.  The role of municipal government is technically not to provide services to the public but to provide services to the owners of property.  However, when said and done what the City of Thunder Bay ultimately does is provide public services to everyone.

 

First and foremost, municipal services need to be paid for and so a  key issue is the long-term fiscal sustainability of municipal services in Thunder Bay.  This of course then becomes tied to property tax rates, provincial grants and user fees – the three main sources of revenue.  The City’s finances in terms of its credit rating are good though as I have noted before it is easy to be prudent when the ultimate budgetary insurance is simply raising taxes.   However, given that there has been a gradual shift to the residential property tax base, the candidates will need to address how much more can the residential taxpayer bear in terms of increased tax rates especially when the tax rate increases have been accompanied by rising user fees for water. What can be done to make city services more cost-effective?

Second, there is the city’s social fabric within which we can include crime rates – particularly homicides – as well as the homeless population, racism, poverty and the growing use of food banks.  The social fabric of Thunder Bay is a crucial issue given its effect on both the quantity and quality of life for its residents.  It is also an important issue from the prospect of attracting new investment in the city given the poor press Thunder Bay garners in major media outlets in the Toronto area.  While there is reason for hope, at the same time continued hope requires action.  How can we deal with our pressing social issues?

Third, is the issue of future municipal governance.  Thunder Bay currently has a council of twelve plus a mayor with five of the councillors At-Large and the remaining councillors ward-based.  We do need to have a conversation as to whether this is still the best institutional framework for municipal decision making.  The At-Large/Ward hybrid harkens back to Amalgamation in 1970 as a compromise to deal with the need to make city wide decisions in the face of strong regional loyalties to the old municipalities and neighborhoods.  However, it is not 1970 anymore and some thought should be given not only to having a smaller council - as a signal that there is a commitment to efficient government - but also one that is either all Ward based or all At-Large.  As noted in an earlier posting, my preference would be for an all Ward based system.

Fourth, is the general issue of what I would broadly term city development but encompassing not only the city’s economy – about which City Council actually not do much about directly – but also its urban development, infrastructure development (I would include a new bridge over the Kam here)  and demographics.  Aside from providing an environment conducive to business via tax and regulatory policy and ensuring cost-effective and appropriate services and infrastructure, City Council cannot really turbo start the local economy.  That is a function of national and international economic conditions and the demand for what we do here.  Ultimately, what can we sell to the rest of the world from Thunder Bay? Tourism is one area where we can still do more as a city.  However, we are also hampered economically by having a spread-out city that is costly to service with new housing developments springing up willy-nilly in outlying areas.  However, we have made some progress in core-specialization with many government services in the former south downtown and a thriving cultural/arts/restaurant scene on the north side adjacent to the waterfront.  We also face an aging population that is quite pronounced given that so many of our youth have left.  While the First Nation’s population is young and growing, much work needs to be done to ensure they are equipped with the human capital necessary to maximize their economic potential and many of those tools are under the purview of the federal and provincial government.  There are no easy or quick answers here but one hopes candidates have pragramtic and workable ideas.

Finally, I am somewhat cautious about bringing up the next point but feel that I should despite the fact it is the kind of thing that some candidates may latch onto and neglect the more important and difficult issues already covered.  We can all recall the last municipal election when the debate was consumed by the Events Centre with all other major issues relegated to the sidelines.  Still, I would be remiss if I did not mention that 2020 will be the 50^th Anniversary of the creation of Thunder Bay and we should give some thought to what type of events or projects we will use to commemorate Thunder Bay’s amalgamation in a manner that is positive and celebrates our potential.  Again, I have had thoughts on this in the past but there may be other ideas out there.

So, without further ado. Let the campaign debates begin!

Explaining Thunder Bay's Municipal Election Candidate Growth

With over 101 individuals seeking municipal office for October's municipal and school board elections this October, the question that now comes to mind is why are there so many candidates seeking office?  More importantly, why has this number been growing over time?  After all, in 2000 only 76 candidates sought office.  While there have been some ebbs and flows in numbers since then - there was another surge in candidates in 2003 - it remains that particularly since 2006, the numbers seeking the Mayor's job as well as an At-Large Council position have grown steadily.  Yet the overall population of the City is flat.